PHD Equity Partners – the private equity arm of Dow Schofield Watts – is pioneering a new structure that will enable it to follow a longer-term investment model and increase liquidity for investors. It has also raised £5m in cash from shareholders via a rights issue to provide additional capital for acquisitions.
James Dow, Craig Richardson, Philip Price, Andy Dodd
PHD has sold its investments to a new independent holding company for £24m. PHD Industrial Holdings Limited brings together its six investee companies and has consolidated sales of over £60m, EBITDA of over £7m and employs over 330 people.
It will grow its value through the growth of its subsidiary businesses and by reinvesting group profits in new acquisitions, with the aim of achieving a capital value in excess of £100m. Shareholders will be offered regular opportunities to buy and sell shares between themselves and with new incoming shareholders.
The company is now actively looking for acquisitions. Typical targets will be profitable, cash-generative SMEs with repeat products and services in well-established industry sectors with turnover of up to £10m and EBITDA of £500k to £2m.
Existing investments include Wigan-based sealants and adhesives specialist Hylomar; Lancashire hardware specialist Olympic Fixings; Goole-based chemical manufacturer Technikraft; Nottinghamshire art supplies firm Teaching Art; and Auto Marine Cables and First Class Holidays, both based in Manchester.
All were originally acquired through PHD Fund 2, which was raised in 2014 and has performed strongly, providing regular substantial cash returns to investors. Fund 2 delivered an IRR of 12.6% and a 1.5x money multiple on the sale to PHD Industrial Holdings. It follows the success of Fund 1, which generated a 21.6% net IRR and 2.4 money multiple for investors, after fees and carried interest.
PHD Industrial Holdings will be led by executive directors Andy Dodd, Philip Price and Craig Richardson with James Dow as Chair. Rob Unsworth and Jonathan Brown will join as non-executive directors.
Andy Dodd, Director, said: “Many private equity firms are looking at longer term investment strategies or selling portfolio companies internally from one fund to another. I believe we are one of the few in the UK to transition to this type of business structure.
“It takes time to find good investments and prime them for growth, and where there is a high quality, profitable business that is increasing in value, it makes no sense to sell prematurely. The cycle of fund raising, investing and exiting also means there is a significant proportion of time where funds are not invested.
“Our investors have been delighted with the returns to date. However, the ability to reinvest cashflows and hold investments for longer will allow them to benefit from compound growth and further enhance returns, while offering greater liquidity and tax efficiency. The new structure, together with the £5m fundraise, will also give us considerable firepower going forward.”
O’Connors provided legal advice on the transaction while RSM provided tax advice.
About PHD Industrial Holdings
PHD Industrial Holdings is a UK-based acquisitive conglomerate investing primarily in the UK SME sector. It is run by a team of experienced professionals who have worked together for many years, and have a deep understanding of the challenges of growing and shaping successful businesses and working with founder-led companies. PHD Industrial Holdings currently comprises six main trading businesses in a variety of different industries employing over 330 people with a combined turnover in excess of £60m. PHD IH’s core strategy is to grow the group both organically and through the acquisition of well-established profitable UK SME businesses.
About Dow Schofield Watts Group
Dow Schofield Watts is a prominent independent advisory business which for over 18 years has delivered a partner-led corporate finance service across diverse industries. Established in 2002, the firm has a talented team of 78 professionals, based in offices in the North West, Leeds, London and Aberdeen and provides a broad range of professional services, including corporate finance, transaction services, business recovery, management and strategy, tax advisory, forensic services, debt advisory and wealth management. The business has a dedicated tech team and operates the Dow Schofield Watts Ventures network, a private equity investment business in PHD Industrial Holdings and Pandea M&A, an international network of corporate finance firms which now covers 20 different countries and 39 offices.